Madison Company has purchased land that will serve as a temporary repository for nuclear waste. The site will function for 20 years, at which time Madison will be required to completely decontaminate the land. The purchase price for the land is $700,000. Madison knows that the land will have to be decontaminated but isn’t sure which of several possible approaches will be sufficient to reach the level of decontamination necessary by law. The costs of each approach, and the estimated probability that the approach will be the one used, follow:

Approach 1 15% probability of total decontamination cost of $10,000 at the end of 20 years.

Approach 2 25% probability of total decontamination cost of $250,000 at the end of 20 years.

Approach 3 60% probability of total decontamination cost of $1,200,000 at the end of 20 years.

The appropriate interest rate is 10%.

Instructions:

Make the journal entries necessary to record the purchase of the land and the recognition of the asset retirement obligation.